“Optimizing the US University-Industry Innovation System in a Global Environment”
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Note: In 2010, as part of my M.S. thesis, I explored the topic of “Optimizing the US University-Industry Innovation System in a Global Environment” through a rather extensive exercise that provided me the opportunity to organize my thoughts around the topic.
It was my plan to sit on it for awhile (If anything to save face if it was crazy!) and then open it up (unchanged) and turn it into a working document that could be built/written/discussed by the community. That time has come.
I hope you can find some value in this initial work, but more importantly, I hope WE can build this into something that the community can use to shape the future of university-industry innovation!
-Jacob Johnson, Founder, innovosource
(Exploratory Statement, Composed 3.2010, Released 9.23.14)
The United States innovation system has globalized the world. Its freedoms have inspired democracy. Its educational system has created a global science and engineering (S&E) workforce. Its business success has expanded its reach into other developing nations which advances their wealth creation. Its moves have intertwined technology capabilities into foreign lands. The US innovation system is sought after, modeled, and applied by the rest of the world.
An innovation system is responsible for the creation of customers through the movement of ideas into the marketplace. This is generally accomplished when an idea is applied by an entrepreneurial spirit and delivered to the consumer as:
- a new or improved product or service technology in a familiar market (extension, new technology opportunities)
- a creative use of an existing product or service in peripheral, but existing markets (adjacent, new markets)
- a technology breakthrough, which provides a platform for breakthrough products and services that can launch new industry (entrepreneurial zone)
The research university-industry(U-I) innovation system is perhaps the best example of the entire innovation process from concept to market. Both environments are very different in mission and function, yet they each provide vital components of innovation. Their partnership can lead to both short term, incremental product offerings, and to breakthroughs that borne new-to-the-world products and spawn new industry. In the process, they also create the human potential to drive ideas forward, and sustain a knowledge workforce.
Historically resourced by the government, industry, and the public, this unique nexus of talent, training, and technology is something that is not easily emulated—an American competency.
Today, the United States is competing with the rest of the world for innovation resources and capability. Its leadership position is being challenged by new global innovation systems, and compounded by a volatile domestic landscape. To lead and flourish in the 21st century, the US must exercise its tolerance for change and open its eyes to the opportunities of an expanding global environment.
With US companies mounting R&D and sales abroad coupled with a growing educated, affluent, and wealthy global population, there is real motive in making sure emerging economies succeed. Growth of these economies creates extended capabilities and buying power, and strengthens the innovation systems of the world. This will create long-term partners and customers. The world will not stop and wait for the US to lead, or adapt.
As the major innovation system, the current university-industry (U-I) relationship is also in need of change. Pressure from global growth will affect this system’s ability to handle the expansion with efficiency, and ultimately to realize the full breadth of opportunities. Two primary areas of concern are the ability of the current system to properly resource (time, people, and money) and effectively align the relationship.
Those universities and industry currently resourced to facilitate linkages may observe tension as an actual decrease in resource allocation as a result of budget constraints, or as stagnated resource levels within an environment of increasing partnership options. Both will impact the system forcing decisions that may limit the relationships that they pursue.
Some potential reactions to this scenario include:
- Focusing on relationships with only well known partners, which ignores expanding opportunities
- Limiting the amount of marketing and active communication of innovation resources, which decreases exposure
- Narrowing relationships to only those who can provide short-term or large returns, which limits a long-term relationship focus and often favors larger entities with bigger discretionary and research budgets
- Retreating from the innovation system all together
There are also many small- and medium-sized universities (SMUs) and small- and medium-sized enterprises (SMEs) who are without resources entirely. When no resources exist to explore connections, both parties may refrain from working the relationship into their strategic plans, or worse may be unaware of the opportunities that exist. They are simply without the capability to engage.
Another area of concern is a misalignment between the university and industry environments, which leads to inefficiencies in collaboration. The approach to forming relationships from one system to the other can be haphazard, often a result of a lack of transparency. The issue is that traditional organizational hierarchy does not adequately display the real interaction points—there is a deeper system at work. This is similar to the differences between a traditional organizational chart, and a social network diagram. Failure to create stronger, more actionable connections, especially in a time of increasing options and decreasing resources, will potentially cause a loss of opportunity.
This analysis is based on an innovation methodology that challenges the existing University-Industry innovation system, in order to create an ideal future state capable of realizing more opportunities within the global innovation landscape.
- Define university-industry (U-I) innovation relationship: Recognize the current state of universities and industry in the shared innovation system. Identify key points of valuable interaction to grow and expand that can lead to innovative partnerships
- Challenge the current U-I innovation system: Once the relationship is described, the system will be tested and challenged under dynamic observation and feedback mechanisms. This will be accomplished through targeted surveys, trend forecasting, and experience from applications built to facilitate components of U-I interactions. The reaction of the system to these challenges provides opportunities for improvement
- Forecast the future state of the U-I innovation system based on trends and observation: These observations are the basis for forecasting potential future states of the U-I innovation system. A system needs analysis provides a method to test desired traits against potential scenarios, and highlight growth opportunities that are vital to realizing a desired future
- Create the future of the U-I innovation system through disruption: Finally, structuring new opportunities that can relieve tension on the system and allow for success in the future realities
Composed 3.2010, Released 10.1.14
Define University-Industry Innovation
The University and Industry environments are increasingly linked through innovation partnerships. In fact, President Obama released a request for information in early 2010 that addressed the leadership of universities and industry. He requested ideas on “increasing support for research at our nation’s universities and the effective commercialization of promising technology”. The U-I innovation system is at the nexus of this movement .
The following section will identify the current state of universities and industry in the shared innovation system. It will specifically identify differences in how each views innovation in its mission and why each lacks certain innovative resources within their environments that create opportunities for interaction.
Overview of Industry’s role in innovation
The primary mission of most companies is to increase shareholder value and sustain competitive advantage. Their “tools for profit”, or products and services, create customers. In order to sustain competitive advantage they must innovate; therefore, a major goal of any high-tech company should be management and expansion of its innovation—current, near-term and long-term.
- Current innovation is managed through maximizing the profit life of existing products and services—optimizing the company’s ownership rights of the offering, and exhausting its value in the marketplace.
- Near-term innovation represents improvements of current and next-generation products and services through cost reduction, incremental improvements and other optimizations.
Most businesses support innovation to this point. Four primary drivers for commitment to current and near term innovation include:
- Product Success: Near-term innovation is a successful strategy—with a high new product success rate (68%), ROI (124%), and market share (40.2%) 
- Delivering on Shareholder Expectations: Investors, and especially analysts, have a “tendency to discount into the present value of a company’s stock price whatever the rate of growth they foresee the company achieving”. The company must meet or exceed that expectation to keep the market price from dropping (let alone grow). The percent of the expectation attributed to “new investments” is higher in high-tech firms. Therefore, investing in closer to market innovation can deliver near-term growth to satisfy these demands 
- Advancement Culture: Top leadership is forced to deal with “problems to which solutions are more or less urgent and the answers are less than clear-cut” and “every time a new idea is submitted it creates more problems”. Often employees are pressured to build from “what is” to decrease perceived risk for upper management, rather than “what could be”. This can filter out longer-term, higher risk opportunities 
- Traditional Business Planning: General business theory and practice, especially financially based, will tend to hedge risk in the decision making process. Because long-term innovation is perceived as significantly risky, both in the actual commitment and in the changes that would occur to the current business if applied, business models often favor the familiar
However, near term innovation is all too often a route to mediocrity and obsolescence. For instance, how much was Kodak hurt by following into the Digital Age? Whereas Monsanto struck it big by taking a risk on biotech and agriculture versus remaining focused on synthesizing polymers. These were long-term innovation decisions. These choices can lead to new-to-the-world products and services that can bring the company into new markets and opportunities.
The risk associated with this type of innovation is high, but much more related to a company’s ability to adapt, than the actual product success itself. In fact, citing the same study as above, new-to-the world products have a higher success rate (78%), and while they make up only 30% of total product launches, they represent 60% of those viewed as “most successful”. In order to deliver on its mission, truly innovative companies increasingly focus on a breadth of innovation—current, near-term, and long-term. Industry is the major commercializing agent of innovation; however, industry should not, and arguably cannot, take on this task alone.
While it is true that there are many sources of innovation within a company’s human and technology portfolio, new perspectives are always crucial. Also, as companies begin to downgrade or eliminate internal R&D capability due to strategic decisions and capital issues, they must partner with other organizations to innovate.
A major partner of both near and long-term innovation is the research university—specifically as a provider of assistance with short-term innovation and source of scientific breakthroughs.
In fact, Henry Chesbrough, author of Open Innovation, states in a recent interview  that as global innovation expands, a solid business model translates technology into economic opportunity by leveraging an “open network”. When his industry clients are asked to “list the major ideas that came into the industry in the past 5-10 years”, a “surprisingly high percentage” of them respond that the “game changing ideas didn’t come from current players but from somebody out of a university”. He goes on to advocate that the future of innovation in industry will involve an increase in “experimentation working between companies and universities and that universities are becoming more central to innovation” especially as companies focus less on basic research.
A strong connection with a university can tie into a company’s innovation strategy and can lead to better products and services.
Composed 3.2010, Released 10.8.14
Overview of the Research University role in innovation
The research university has a three-pronged mission to educate, to conduct research, and to provide to the public good. Generally speaking, research universities run on the theme of “academic freedom” or liberty to teach, pursue, and discuss knowledge without restriction or interference, as by school or public officials.
Innovation in the academic environment takes on a different form than industry, with diverse expectations, goals, and deliverables relevant to the funding source. In fact, universities are really more concerned with invention and breakthroughs, which may lead to innovation, but start with basic research.
Basic research at the academic level is directed at challenging existing paradigms through the scientific method (Figure 6). A new discovery can present a platform for a breakthrough technology that provides opportunities for long-term innovations.
However, in the process of discovery, certain opportunities exist both in knowledge and resources that can aid industry in innovation both near-and long-term. The primary sources of this knowledge are faculty and students, and the primary resources are found throughout research centers and colleges.
Connecting to these knowledge resources is important, so universities have put in place both corporate relations officers and units throughout the system to help facilitate connection with industry and to process agreements. They also establish sponsored projects, technology transfer, and venture offices to focus on specific initiatives like research agreements, licensing, and start-up formation which move invention to innovation and hopefully into the marketplace through an agreement with a new or established company.
A major source for this motivation is based on federal policy. The Bayh-Dole Act of 1980 gave research universities the right to commercialize its own discoveries for profit and public good. A recent article submitted by Sen. Birch Bayh, Joseph Allen and Howard Bremer, three key figures in the policy’s inception, point out that research universities have had quite a successful history
However, some critics say that even more could be done. In the recent Harvard Business Review: Breakthrough Ideas for 2010, Robert E. Litan and Lesa Mitchell, executives from the Kauffman Foundation, advocate that university technology transfer offices should loosen their monopolistic grip on their scientists’ taxpayer-funded discoveries. They suggest that the universities’ technology transfer units are slowing the process down, and that even more success could be found through an open environment . 
Regardless of the position, both groups would agree that the focus on talent, training, and technology bolsters the research university as a major source of current, near-term and long-term innovation for industry. Research universities can partner with industry as a natural extension of its innovation agenda.
Composed 3.2010, Released 10.17.14
Overview of University-Industry Relationship and Impact Areas
Recognizing that universities and industry both play a role in innovation does not make the realization of that partnership any easier. In fact, many conclude that these systems are not compatible—that their differences are too great to overcome. Others believe that encouraging a relationship may diminish the unique capabilities of each over time. It is fair to recognize that both may prove true in certain cases.
A major advocate for U-I relations , the University-Industry Demonstration Partnership (UIDP), in its Guiding Principles , suggests that partnerships should focus on three key goals to realize opportunities”
- Supporting Missions: Realize that each partner brings something to the table that the other needs
- Long-term Relationship: Focus should be on forging and growing a long term relationship
- Focus on the benefits: Understand that the returns go beyond the immediate action, or short-term outcomes
But, these optimistic goals are just the beginning. There must also be a system in place to connect these two partners, to catalyze the action, and to improve the system through knowledge. Balancing these motivations, while maintaining the ability to handle more options within the system is important to a successful innovation system, and a primary reason that the system is being challenged today.
A successful University-Industry relations model should focus on impact areas. These “areas” provide an environment where a success benefits both parties. These successes, especially early in the relationship are important to the formation of a long-term partnership.
Key examples of these impact areas and corresponding benefits highlight the potential of the relationship. It is important to note that while not all impact areas relate directly to R&D in a traditional sense (blue), they all lead to experience, education, and networking—key drivers of innovation.
Improvements to the U-I innovation system must realize these impact areas, as the source for long term relationships and increased global innovation opportunity.
Composed 3.2010, Released 10.31.14
The university-industry innovation system must align itself to take full advantage of the relationship. Any recommendations to optimize the system should take into account the reality of the situation without preconceived notions or beliefs.
With the current relationship described, this section will challenge the accepted reality in order to identify opportunities for improvement. This analysis will test the system through targeted surveys (university- and industry-side), a trend forecasting exercise using professional within the university system, and experience from tested applications built to facilitate components of U-I interactions. The reaction of the system to these challenges provides opportunities for improvement.
In order to understand the industrial perspective, an online survey was conducted of professionals (director level or above) from high-tech companies. These professionals are directly involved in innovation strategy and were asked to honestly describe their relationship with universities.: 
The objectives were to identify how the respondent companies:
- aligned themselves internally to interact with universities, for the purpose of comparing their points of interaction with those in the university setting
- identified university partners in order to recognize their most important selection criteria
- chose to enter into the university environment to understand their preferred points of contact
- viewed different types of U-I innovation relationships in terms of return on value
- rated inhibitors that dissuaded their participation in the innovation system
Overview of Survey Participants
The survey received feedback from over 100 business professionals (20% response rate) ranging from operational unit to CEO. The corporate respondents represent 19 high-tech sectors ranging in size based on annual revenue (small (<$1M), medium ($1M-1B), and large ($1B+). For the purposes of this analysis, SME will be used to describe company respondents under $1B in annual revenue.
Business Organization Points of Interaction
A strategic and coordinated approach displays an understanding and respect for the other organization. Additionally, using this information in prospecting, marketing, and engaging partners, increases the efficiency and opportunity of a relationship. In this case, appreciating how industry organizes itself to connect with universities is the first step in determining whether or not universities are properly aligned to facilitate interaction.
The respondents with a defined university relations strategy identified three primary organizational models including centralized, business-unit level, and a mixture of both:
Centralized: One unit is responsible for most university R&D and innovation interaction.
Business-unit level: Decentralized unit level decision making out of research or technology intensive business groups. SMEs that have fewer employees may coordinate informally, or make strategic decisions at this level
Both central and unit level decision making: Many highly coordinated companies conduct relations through a top-level strategic initiative and then throughout business-unit levels when needed. Many of these groups facilitate these initiatives and generate ideas through technology forums and workgroups
When broken down by company size below, a major observation is that larger companies seem more prone to engaging universities and figuring them into their innovation strategy (only 2% have no strategy in place). Also, with almost 80% identifying with some level of decentralization, there could be an increased complexity in forming a strategic relationship.
There was a noted lack of SME respondents with a defined organizational model to facilitate university interaction. According to their open responses, issues can involve both resources ($$, people) and better communication (awareness, transparency) to the potential of collaborative innovation ventures with universities.
Identifying University Partners
Next, a vital part of any assessment is to understand why one partner chooses the other. The opportunity is to position the products and services as an attractive solution to that need; therefore, universities should understand how industry selects its relationships.
In terms of relative importance to directing decisions in identifying university partners, respondents rated the following in terms of percent(%) viewing each as “important” or “vital” (this trend was fairly consistent among businesses of all sizes):
- Research Facilities related to product service (81%)
- Past experiences with the particular university (77%)
- Proximity of company to university (38%)
- University-Industry professional organizations (34%)
- Publication scanning (33%)
- Currently employed alumni (27%)
- National Rankings (like U.S. News and World Report) (12%)
- “Being where my competitors are” (12%)
It appears that a focus on quality, long-term relationships and exposing valuable research facilities that fit into the company’s innovation strategy are the two most crucial to site selection.
Contrary to popular belief, national rankings and employed alumni at the company seem to have less of a driving influence on which industry targets for innovation collaboration.
One interesting observation is that high number of respondents weren’t concerned with forming relationships at universities where their competitors were active. Given the large number of universities with resources, many in industry may prefer to choose different university partners to protect the secrecy of projects, and identify partnerships that are more “available” to concentrate on the particular initiative. This may be an opportunity for SMUs to offer their capabilities, as alternatives.
Engaging University Partners
Once identified, industry will engage the university for partnership. According to the respondents, the primary entry points (as ranked by a 4 or 5) were associated with the following nodes:
- Individual Faculty (82%)
- Research Center or Program (76%)
- Technology Commercialization office (28%)
- Corporate of Foundations Relations Unit (8%)
- Other university service (student placement, professional development (7%)
The typical preferred entry point for respondents was directly to faculty and research centers. This is a significant challenge to the way the way that universities organize to facilitate corporate interactions. It also illustrates a key opportunity for alignment and connection with the disruption suggested later.
Corporate relations units and technology transfer offices appear as secondary entry points, especially true in large companies. One theory is that a significant amount of value is exchanged at the faculty (consulting) and research center level (agreements, facility and equipment usage), and that larger companies have the means to explore universities on their own without ever connecting to university organizational nodes.
An observation worth noting is that SMEs, while still preferring to go directly to faculty and centers, utilized the technology transfer office more than the others as the entry point for R&D and innovation. Many small companies may look at intellectual property, and new technology from universities as their major source for growth, and therefore see this office as an obvious entry.
Extracting R&D and Innovation
Once engaged, it is important to understand what the other party views as the most valuable in terms of return on initial investment ($$,time). It will allow universities to properly rank the proposition of their resources.
According the all respondents, the most value (as ranked by a 4 or 5) was associated with the following innovation strategies:
- Consulting with a faculty member (58%)
- Hiring students with research experience in area of interest (46%)
- Collaborating on Industrial Research project with university (42%)
- Licensing technology(32%)
- Using /contracting usage of facilities and equipment (23%)
Respondents received their most valuable payoffs relative to university-industry interaction through faculty consulting (bring knowledge to industry projects), hiring graduates (bring knowledge, IP to company), and research center collaboration (networking, access to talent, facilities, and equipment). A major source for all three of these resources is through research center relationships.
While generally high for value, many respondents do not even attempt a relationship with the technology transfer office, a major source of near and long-term technology. This is a missed opportunity. Large company respondents tend to find more value in this office in relation to businesses of other sizes . An observation requiring more investigation would be that because of resource availability, larger companies are both capable of signing larger licensing deals, and have a more rapid ability to bring the product to market. Under-resourced or profit motivated technology transfer offices may target these relationships first.
While this provides an opportunity for the University to both succeed in profit and public good, it creates a potential tension point with SMEs, who stated that they use this office as a primary entry point. Their perception of a working relationship might be dissuaded by their inability to work through this point. The opportunity would be to help them explore other opportunities throughout the university system.
Inhibitors of working with universities on R&D and innovation
To improve a relationship it is important to not only define value, but constraints and inhibitors in the system. Those who responded ranked the following in terms of inhibiting their relationship with universities:
- Negotiation and terms for licensing intellectual property (73%)
- Once engaged it takes me too long to get the project started (49%)
- Cost associated with research projects (44%)
- General scanning reports and ranking systems don’t seem to present what I’m searching for (19%)
- “ don’t know where to start” (18%)
Respondents noted that negotiating for technology, time to finalize projects/agreements, and cost associated with university research as three major inhibitors to working with a research university. This is consistent amongst business of all sizes.
This is not an alarming finding as it is seems to be a perpetual tension point in thought circles. Valuation of technology, time to agreement, legal constraints, and moving agreements through the U-I environments are some common themes. Universities are beginning to offer some initiatives to alleviate some of these issues, including:
- Master agreements that include a standard base IP and cost-sharing agreement to get project started, with detail discussed later
- Corporate relations units with relationship managers to “shepherd” agreements through the university system
- New technology development process to provide structure to the IP movement from disclosure to license or start-up
- Rapid licenses to move more incremental technology into the marketplace, often offered directly online
- Selling licenses through third-party IP brokers like Ocean Tomo and Kauffman Foundation’s iBridge
- Specific industrial negotiators in sponsored research offices to move contracts forward
Generally, the survey seemed to identify some key points that are drivers for a potential disruption to the current system
- The preferred method of entry and the most value derived seems to come from contacting and working directly with university faculty and research centers. The opportunity is to create a system that enables industry-university connection at this level (alignment).
- Industry bases their university target partners on their innovation capabilities (research, talent, etc.), location, and past experiences. The opportunity is to bring these resources forward (connection).
- The primary inhibitor is related to the timeliness and cost associated with working with universities. The opportunity is the shorten the time it takes to locate resources (cost-savings)